The Independent Market Observer

4/8/14 – Market Declines: What’s Your Plan?

Posted by Brad McMillan, CFA, CAIA, MAI

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This entry was posted on Apr 8, 2014 2:00:00 PM

and tagged Market Updates, Economics Lessons

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I’m headed back from a brief vacation today. My family and I were at the Commonwealth Winners Circle conference, then ventured down south of Tucson to stay with Jackson’s Gram and Pop-pop. It’s been a fun couple of days—I particularly recommend the Desert Museum—but today will be spent on planes. That’s the plan.

My wife, Nora, is a great one for planning, especially with travel. I just sit back and do what I’m told, and sure enough, we get there. She has the data, the resources, and the itineraries locked down, which is particularly important when traveling with the cranky (me), plus Jackson, our five-year-old son.

After two days of market declines, the question for investors is: Do you have an action plan if it gets worse? That plan could be to roll over and go back to sleep—riding it out is certainly a valid course of action—but you need to have thought it through.

If you don’t think you can ride it out, have you given any thought to what you will do, and when? Is there a trigger point that you’re looking for? And, perhaps most important, when will you get back in?

I stand by what I said yesterday: chances are, this isn’t something to worry about. It is, however, a good reminder to think things through ahead of time. “You can’t fix the roof leak when it’s raining” is a quote I trot out in media interviews sometimes, but the reason clichés exist is because they are true.

One way to approach declines is to ignore them, which may be the best tactic if you can handle it, and if your portfolio is properly designed. Another strategy I endorse is to use indicators that show when a small problem may become a big one, if only to prepare yourself mentally or maybe to shift your investments.

However you, and your advisor, choose to plan, it is important that you do so. The damage done in 2008–2009 wasn’t just from the market declines but from investor shock and panic; people hadn’t even considered the possibility of such a drop. Seems kind of foolish, since the 2000 crash was then only eight years in the past, but we had forgotten.

I certainly am not predicting another crash, but I am suggesting we remember. 2008 was only six years ago. Fool me once, shame on you. Fool me twice, shame on me. Plan ahead.

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